A smoothly functioning banking supervision regime is one of the cornerstones of the infrastructure of any financial system. Only a stable financial system can optimally fulfil its macroeconomic function of efficient and low-cost provision of financial resources. Stability is therefore one of the key aims of prudential regulation and oversight. Supervisory law sets the rules that have to be complied with when setting up banks and carrying out banking business. The liberalisation of the financial markets has created new business opportunities for banks which may significantly amplify their risk situation. New risks necessitate new methods if supervisors are to prevent bank insolvencies. It is thus unsurprising that the liberalisation of the financial markets in recent years has led to developments in banking supervision.
The German Banking Act (Gesetz über das Kreditwesen) essentially forms the legal basis for the supervision of banking business and financial services, while the Payment Services Oversight Act (Zahlungsdiensteaufsichtsgesetz) is the legal basis for the supervision of payment institutions and electronic-money institutions. The former, in particular, is heavily influenced by the provisions of European law. The Capital Requirements Regulation (CRR) and the Capital Requirements Directive (CRD), are especially relevant in this context. While the rules contained in the CRR (and the technical standards) apply directly in all EU Member States – i.e. also in Germany – because it is an EU regulation, the CRD, as a European directive, needs to be transposed into national, and thus also German, law.
These acts seek to achieve the aim of safeguarding the functional viability of the financial sector by way of creditor protection while taking account of market economy principles. This means that the sole responsibility for business policy decisions remains with the managers of the institutions. However, they are required to comply with certain general provisions and submit a large amount of documentation to the supervisory authorities. While the CRR contains provisions in this regard that are directly applicable to institutions, such as minimum capital requirements and disclosure requirements, the provisions of CRD and the Banking Act apply primarily to the supervisory authorities. These relate to issues concerning supervisory cooperation, holder control procedures, supervisory review process requirements, capital buffers, supervisory measures and sanctions. Issues that are not covered by the CRR or CRD are still governed exclusively by national law, such as the rules on loans of €1 million or more.
The intensity of supervision depends on the scale of the business provided and the risk it entails. Banking supervisors do not directly intervene in the institutions' individual operations.
Ever since the introduction of general state banking supervision in Germany, the central bank has played a key role in supervision. The Bundesbank's involvement in banking supervision continues this tradition.